Canadian energy explorer Niko Resources Ltd (Niko), a partner of Reliance Industries Ltd in the D6 block of the Krishna-Godavari (KG) basin, has asked the Indian government to allow a market-linked price for gas produced from the field. Niko told shareholders late on Thursday, when it released its latest financial results, that it had sought a market-linked gas price in line with the production sharing contract signed with the government. “The company has provided input to the GoI (Government of India) about the requirement for market price for natural gas sales as per the production sharing contracts awarded during the New Exploration Licensing Policy rounds and the fundamental principle of sanctity of contract as a required underpinning for long-term investments in any country,” Niko said in a statement.
Niko added that RIL and its partners will not make any further investments in the absence of market-linked pricing. In June, as part of its annual earnings statement, Niko said investments would be deferred until there was clarity on gas pricing, but had stopped short of demanding a market-linked price. Niko is a 10% partner in the D6 block operated by RIL in which British oil and gas firm BP Plc. is a 30% partner.
RIL did not immediately reply to an email sent on Friday morning. Friday was a holiday on account of Independence Day. On 25 June, the National Democratic Alliance (NDA) government said that a decision on gas pricing is likely by 1 October. An earlier decision to hike gas prices taken by the United Progressive Alliance (UPA) government was put on hold due to the election code of conduct ahead of the general election. According to the formula approved by the UPA government, the price of domestic gas was to be doubled to $8.4 per million British thermal units (mmBtu) from 1 April. The change in prices was based on a formula suggested by a committee headed by C. Rangarajan. After the gas price hike was put on hold, RIL slapped an arbitration notice on the government on 6 July. “While the company is disappointed with the progress on gas price hike, the contractors (D6 partners) under protest but in good faith, have kept supplying the gas to customers and charging them for the gas supplied under the terms of the sales contracts that expired on 31 March 2014, that is, at $4.2 per mmBtu,” said Niko in its earnings statement. Analysts said the company was trying to keep up the pressure on the government.
“The PSC allows for arm’s length gas pricing which means that the prices have to be determined between two players—the buyer and the seller—and the government will have no say in it. But the ball is now in the government’s court and it cannot allow a market-linked price,” said Dhaval Joshi, an analyst Emkay Global Financial Services Ltd. According to Platts, a global energy research firm, the price of liquefied natural gas in the global spot market had gone up to $20 per mmBtu in December 2013. The price has now come down to $10 per mmBtu. An analyst at an international brokerage, who requested anonymity, said the long-term price of imported gas is currently hovering around $12-13 per mmBtu—still higher than the price calculated on the basis of the Rangarajan formula. Apart from the arbitration over gas pricing, RIL and its partners have challenged the government’s move to disallow cost-recovery from the D6 block for falling short of production targets.
Between fiscal 2011 and fiscal 2014, the government disallowed cost-recovery of $2.38 billion. RIL is currently producing just about 8 million standard cubic metres per day (mscmd) from the D1 and D3 fields—a part of the D6 block and the only two producing fields in the KG basin, which were discovered to have substantial resources of gas in 2002. This is against the original stated target of 80 mscmd.
Source: Livemint
0 comments:
Post a Comment